move along, and I'm really excited to welcome Chris Uchida, CFO of Palomar, and Jon Christianson, the President, and turn it over for any opening comments before we jump into Q&A.
Yeah, thanks, Meyer. It's a pleasure to be here. Good to see everybody. As we think about Palomar, and to set up the conversation for the next half hour or so, really think of Palomar as a specialty insurance platform that has really diversified, particularly over the last five or six years. We are not just in property, but we're in casualty. We've built a surety business, crop insurance business. Really nice and diversified, both on commercial lines, personal lines, admitted, ENS, and really geographic scope throughout the United States. So, really delivering on strong diversification, consistent earnings, and really that's translated into 15 consecutive earnings beats.
We've raised our guidance for adjusted net income 3 x so far in 2026, and we're very confident in continuing to deliver on what we refer to as Palomar 2X, which is an operating philosophy of doubling adjusted net income in a three to five year timeframe. So as we look at ourselves in 2026, really pleased with the composition of the book and our ability to continue to execute.
Great, thank you. So opening question, and we were chatting about this before. I want to talk about AI. What we're trying to get from companies in this conference is, as concrete as possible, a picture of how you're using AI, where it's making a difference, where we on the outside will see it on financial statements. I know it's a broad question because the applications are broad, but to the extent that you can flesh that out for us, that would be great.
Yeah, sure. I'll start and Chris can jump in. As we think about leveraging AI within Palomar, it's really across three primary areas. One obviously is underwriting. We are an underwriting shop, so think about how we can leverage it for underwriting. Portfolio management and portfolio analytics would be the second area. And then operational efficiency, which a lot of people are talking about. As we look across those areas, we are employing and deploying our AI in a number of different ways. A few concrete examples that we can speak of. One, we talked about it in our last earnings call, but PLMR.Farm, the new technology platform that we've rolled out for crop insurance.
I'm sure we'll talk about crop more later, but really one of the ways in which we can differentiate ourselves in the crop market is not through pricing, because that's set by the U.S. government, or agent commissions. It's really kind of three things. It's one is customer service and relationships, second is claims adjusting, and then the third is technology. By bringing an AI-forward new platform into the market for crop insurance is really a differentiator, and AI's helped us do that and will continue to keep us ahead of the curve from a modernization standpoint. Second is on the underwriting side, improved AI-enabled underwriting workbenches for our underwriters across a number of different products. As we get into the operational efficiencies, we're bringing in AI into our operational workflows and customer service.
And then lastly, really on the portfolio analytics side, what we're able to do from a catastrophe modeling, obviously catastrophe modeling's a big part of what we do on the property and particularly the earthquake side of our business. Really able to enrich the data that we're using for catastrophe modeling and improve our portfolio analytics. That then translates into better risk selection and more appropriate pricing for those risks.
Okay, so when we look at your financial statements in, pick a year, three years, we should see that
You're probably going to see it everywhere, right?
Okay.
I'd say the only place you're probably not going to see it, or not to expect to see it, would be acquisition expense, right? From our standpoint, you're going to see top-line performance improve. You're going to see better loss ratio, better other underwriting expenses, I don't know what to call it, growing at a different rate than the top line. I'd even expect to see it in investment income, right? Ultimately, you're going to see it for better improvement in adjusted net income, right? The Palomar 2X philosophy, AI will help that, where we can double every three to five years. But I would expect to see it almost throughout the P&L, as Jon kind of described, right? Except for acquisition expense. Maybe if we start a direct-to-consumer play at some point in time, maybe you'd see it there.
Overall, based on the way we're structured right now, I wouldn't expect to see it in acquisition expense. But every other line, you should see a benefit.
Okay.
I think from our underwriters' perspectives, really looking forward to being able to do more. So, any one of our P&L owners, say it was the individual that leads our builders risk, he's not looking forward to our AI enablement to be able to cut three heads next year. He's thinking about how he can do more with the team that he has and continue to grow in a very profitable fashion. So it's really more of the excitement around what we can do by being better enabled with technology than it is to, how are we going to cut heads?
Okay. Just to follow up on that, to flesh it out, it sounds very much like you're confident that not everyone that you're competing with has these capabilities.
Well, I think different organizations are going to be able to progress at different speeds. One of the other benefits that we have at Palomar is very entrepreneurial culture, founder-led business, which started 12 years ago. We're a bit more nimble maybe than some of the other players in the market. Not to say that a more entrenched legacy carrier platform can't be enabled by AI tooling, but to have a more modern technology stack, probably allows us to be a bit more nimble than some of our peers might be.
Right. Okay, fantastic. Over the course of this session, if you have questions, please don't hesitate to raise your hand. We'll get you the mic, and go from there. I'm going to delve into individual lines now. I want to start with earthquake, because I have a bunch of basic questions. Just want to make sure I get the facts right. I know there are earthquakes every day. We've had a few major earthquakes, like that have been tragic in Colombia and in Indonesia most recently. I have three questions stemming from that. One, scientifically, when you've got those incidents, are the tectonic plates more or less stable after those events, to the extent that you can tell? What do events like that outside of the U.S., what impact do they have on U.S. demand for earthquake coverage?
I've asked Chris this question a million times, so I'm acknowledging that I'm asking again, what are the growth prospects for Palomar outside the U.S. for earthquake?
Yeah, sure. First, as you mentioned, Indonesia and Colombia and Venezuela would go into that category as well. Certainly, as we think back and reflect on the last few months of those earthquakes, it has taken a significant human toll. That is worth acknowledging in the beginning. It is also worth acknowledging that in those areas, maybe not so much Indonesia, but for Venezuela and Colombia, the building code adherence and the building stock is more vulnerable in other areas, and that sadly led to some of the human cost of those events.
From a scientific perspective, as we think about broader tectonic movements, while there has been a clustering, and we see this in the news cycle, there has been this clustering of large events that have made headlines over the course of 2026, last 12 months, last five years, there is no demonstrable change in tectonic activity. Whenever you see a clustering of these events happen in a short period of time, it is natural to think, has something changed? Expert opinions have not suggested that there is anything that is changing. Tectonic movements are happening as they always have. They just tend to cluster from time to time, and that is what has happened in recent months. It does bring to light the need and the value of having earthquake insurance.
What, going back 12 and a half years since we started the company, any time that we have seen a kind of headline-grabbing events, whether it be earthquakes like what we have had over the course of the summer, or frankly, even go back to 2017 with Hurricane Harvey, we would always see increases in demand for a voluntary product like earthquake. What I mean by voluntary product is that it is not mandated that customers buy earthquake insurance in California or other regions of the United States. It is a voluntary purchase, a luxury item to buy earthquake insurance. What we find is that after these events, awareness is increased, and we have a number of new customers that come into the market, which is a good thing.
It does, here in the U.S., decrease or lessen the insurance gap, and Palomar is a natural option for customers to seek out coverage. We do, after all of these events, we always see an increase in new business and the renewal retentions on particularly residential earthquake are very consistent. We have focused our capital in the United States, so we do not have any exposure to the South American or Asian earthquakes. Recently, we are familiar with those markets. That is an area that we have looked at. Right now, we feel like our capital is best pointed at the U.S. market, as we do see this market still being an opportunity for growth.
Okay.
I say one thing I would expand on of what Jon was talking about is when you think about the overall take-up rate, California is obviously the state with the most earthquake business and where we write the most. Right now, we estimate that only about 13% of that market actually buys earthquake. It is a voluntary product. We think that post-event, and you see this uptick after small events in California, would probably be closer to 30%. So there is still a significant, call it TAM, available for the earthquake market.
I remain personally surprised that the banks do not insist on it. If you are-
If you have any sway-
Yeah
We would be happy to take it.
Right.
And that's a long story for another fireside probably, as to-
Oh, absolutely.
why they don't require it. Yep.
Yeah, I was only expressing surprise.
Yeah.
But no one cares what I say. I do want to spend some time. Jon started off talking about the diversification of Palomar, and I think that's an interesting story. I want to talk about the individual lines that you're in, but I have one background meta question. You've attracted a lot of talent, because you're not entering these lines without underwriting and other expertise. How do you keep that talent? How do you make sure that they're happy at Palomar and they don't go somewhere else afterwards?
Yeah, sure. I think this is a topic that a lot of leaders in the insurance space are thinking about is attracting and maintaining talent. One of the unique elements of Palomar is that, again, like I mentioned earlier, we are a founder-led business, relatively new. We've been successful, so growing 20%+ . Earnings for the first half of the year-over-year, grew 27%. ROEs above 20%. There's a lot of really kind of nice story around what we're doing at Palomar. That kind of success breeds further success and allows us to go out and attract other like-minded individuals that are very entrepreneurial, fit the company culture, are builders. When you have an organization that continues to kind of deliver bottom-line growth and a strong ROE, you can't do that without having some degree of a meritocracy type of a culture.
Strong performers tend to gravitate towards meritocracies. I think starting out company culture-wise, we are an attractive place for strong talent to go want to join. Then, certainly from a compensations part of that, because you can't just attract individuals solely based on kind of entrepreneurial culture. As we think about as being a publicly traded company now, to be able to compensate and incentivize P&L owners based on not only just the overall company performance, the division's performance, but we're able to structure compensation around that kind of is in alignment with our Palomar 2X operating philosophy that really kind of rewards strong performance over time. As we think about how we may differentiate from others in the market, that is certainly a selling point, being public traded.
That's, frankly, when we IPO'd in 2019, that was one of the doors that were open for us in terms of being able to attract and maintain strong talent. But
Yeah. The only thing I'd add to that, and you kind of alluded to it, is the fact that the compensation is tied to individual and company goals, right?
We want to make sure that underwriting performance is key to what these people are doing. So if they need to walk away from a deal, they can, but because they're also evaluated on the overall performance of the full company, they can still get bonuses and still get increased compensation because the company is performing well. So we want them to think about, one, their individual goals, but also the overall philosophy of the organization so that they are doing the right thing for Palomar, not just for Joe Underwriter.
Right.
Okay.
And just going one step further on that, can you talk about the I was going to ask what lines you're going into next.
Yeah.
That's probably an unfair question, but the level of talent interest in Palomar and how that's been trending over the last year or so.
Yeah. If we were to look at some of the more recent lines or extensions that we've gone into over the course of the last 12 - 24 months, we've seen strong gains in our builders risk franchise. We recruited a couple really strong leaders in the engineered construction space second half of last year. Part of the ability to go out and bring those individuals in was to show what we'd done in other segments of the builders risk market and use that as kind of an archetype for what they could do at Palomar and the resources that we'd bring to bear to make them successful.
We've also seen some strong growth in the crop insurance space. The leaders that we've brought in have deep networks to be able to go out and recruit others that they respect in the market to be able to come kind of join in. On the surety side, that's another area that we've seen growth. We've had some great leadership come through, the acquisition of The Gray Casualty & Surety Company that closed at the end of January of 2026. So we've seen really good leadership come into Palomar over the last couple of years, particularly in those areas that we've seen nice growth.
Okay. One of the implications of a more diversified book, I would imagine, all else equal, is less reliance on reinsurance. I remember during the IPO when Palomar was very, very heavily focused on earthquake, the comprehensiveness of the reinsurance tower was a very, very important talking point. I think Mac has said many times that his first or his second hire was someone to lead-
Mm-hmm. Yeah.
reinsurance purchasing. How should we think about that the structure of the reinsurance tower, maybe the ideal number of reinsurance partners as Palomar becomes bigger, becomes more diversified?
Yeah. Really, and I think you're probably speaking most directly to the earthquake reinsurance that we buy on the
property cat side. As a reminder, reinsurance is a big part of what we do across all of our lines of business. So whether it be excess of loss in the property cat space to support the earthquake growth, some of the quota shares that we use for some of the newer casualty lines and growing casualty lines, excess of loss that we buy for surety or the combination of quota share and stop loss that we buy for crop. So we have different strategies across different lines of business. But it is something that permeates most of our lines in terms of how we think about risk transfer. On the earthquake side, we do trade with over 100 different counterparties, individual balance sheets on a counterparty basis, as we look at our almost $4 billion reinsurance tower. We like having a lot of diversification.
No single reinsurer has above a certain amount of our overall tower. We like to have, in case there's changing appetites in the market, we want to make sure that we're not beholden to any single reinsurer. So it is a very diversified spread. Obviously, counterparty credit is important. We trade in both the traditional reinsurance market, as well as the insurance-linked securities market. We have the Torrey Pines Re series of catastrophe bonds that we issue. So that's a common approach that any given year we'll have outstanding Torrey Pines Re issuances. All of this to, similar to what we do on the direct side on the insurance business of wanting to have diversification, we do the same thing with regard to our risk transfer strategy. We want to have broad diversification.
From a duration standpoint, most of our traditional reinsurance, it is typical to have annual terms. On the ILS, you have multi-year terms, again, trying to not only diversify across counterparties, but also across durations.
Okay.
Right.
Yeah, and I think you mentioned that obviously as we grow, the goal or the thesis we will be putting more and more onto our own balance sheet. Crop is a very good example of that, where we started off ceding off 95%, and this year we are only ceding off 50%. But when the reinsurance market is cooperative, we will go the other direction. Earthquake is the good example of that, where our retention has not changed over the last few years, where we only retained $20 million, where our tower has gone from $3 billion to closer to $4 billion. So when the reinsurance marketplace is favorable to us, we will happily cede more. We will play both sides or move the lever both directions as we continue to grow and have that capability on our own balance sheet.
Yeah. And we use it with regard to that earthquake retention. We have talked about this in past earnings calls, but we used to talk about how we wanted to keep our retention within one quarter's earnings.
Right.
Now if you have looked at the last couple quarters of earnings, our retention of $20 million is within a month of earnings.
Right.
To Chris' point, as we look at the pricing of those lower layers in favorable environments from a reinsurance pricing perspective, it may make sense for us to keep the retention at that point. That allows us optionality as market changes to give us some optionality with regard to how we set our retention.
Yeah. I was, for whatever it is worth, expecting the retention to drift up. This is not a secret, it is in my model.
Yeah.
I completely get the point that financially it may not make sense given other things that are going on. It will be interesting to see how that manifests itself over the next 12 months because, if nothing else, the takeaway from Monte Carlo is that the cost of reinsurance is going down.
Both on the property side and on the casualty side, where casualty ILS is becoming a bigger issue. Maybe if I can jump off with that, can you talk about your comfort level with casualty ILS with third-party capital?
Yeah. I'd say from a more broadly, I would just say as we think about our casualty business right now, a lot of what we buy is quota share on the casualty space. As we look at that book continuing to grow, there's certain ways in which we can kind of mature our risk transfer strategies around casualty. One way that would not be a non-common approach would be to start to introduce some excess of loss coverage for that casualty book. Just like there's ways of maturing and evolving risk transfer between quota share and excess of loss reinsurance, certainly as we look at new pools of capital that come into the space, there's trade-offs and benefits to evaluating different pools of capacity.
Won't necessarily get into any kind of specifics about how we think of one versus the other than there is, like I was saying on the property cat side, there's benefits of different pools of capital. But we are committed buyers and long-term buyers in the traditional space as well.
Okay, fantastic. I want to spend a little time on El Niño because it's been a real big deal. It's probably one of the reasons that we're seeing, or expectations of lower Atlantic hurricane losses. My view is that everyone's expecting there to be nothing. Who knows? That could change.
Yeah.
But right now. The counterpoint is that the Pacific is really hot and pretty active, and I was hoping you could talk about the exposure there. I'm thinking mostly Hawaii.
Yeah.
What other components of that should I think about in the context of Palomar?
Yeah. I think it's a good point you raise. Of course, in the Atlantic, even though there is suppressed activity, doesn't mean that there's not going to be a landfall in hurricanes. So, there's always that possibility. But El Niño does generally suppress hurricane activity in the North Atlantic. Conversely, as you point out, the Pacific tends to be elevated. So we've seen this historically. The fact that there's been more hurricane formations in the Eastern Pacific and Central Pacific is not a surprise. It's kind of conforming with historical norms as we think about the ENSO cycle. So, our exposure there would be the Hawaii hurricane product that we have. You may recall a few years ago, we moved that book of business from Palomar Specialty, our admitted carrier within the group, to Laulima Exchange.
So that is a Hawaii reciprocal that we started, that we own the AIF. Given the nature of reciprocals, that is member owned. But for the purposes of our financials, they're consolidated within the overall Palomar financials. That we have a very low retention on. So, $1.5 million is the retention for Laulima with regard to Hawaii hurricanes. So it's fairly insulated and mitigated against events that would hit the islands. But I don't know if you want to talk more about Laulima or anything.
No, you hit the high points.
El Niño or the high points, the retention of $1.5 million is the important fact. But yeah, overall, its results are consolidated into the group results as a variable entity.
Right. I was curious about that on the accounting side. When does the fact that it's not entirely owned by Palomar impact the financial reporting? Like if we imagine bad news, or how does that work?
Yeah. Not owned at all by Palomar. It's a variable interest entity from an accounting standpoint, so its results are consolidated. It looks like just one of our subsidiaries, but technically, it is owned by its policy holders. Right now we have funded the surplus note because we have funded 100% of that surplus note. The accounting rules say we do need to consolidate its results. At some point in time, most likely when we have that note refinanced, and there's no exact percentage calculation on if it's 60%, 70%, but let's say when the majority is no longer associated with Palomar, then we will no longer consolidate that entity. Right now it just looks like any other subsidiary, but at some point in time it'll look more just like fee income as the attorney in fact that is administering that book.
Yeah.
But going back to your El Niño question, as we think about the Palomar book of business, those are probably the two elements that are most pronounced with regard to El Niño would be North Atlantic hurricane, Eastern Pacific hurricane.
Okay, fantastic. If there are questions in the room, please don't hesitate to raise your hand. I want to spend a little bit of time on surety. A couple of years ago, I wrote a report on surety. I think I titled it "Easy Money," because I think it's a fantastic line of business. I want to get more specifics. You've made a couple of acquisitions in the surety realm. What's the status of integrating those companies and the presumed distribution expansion accompanying what were somewhat regional surety players?
Yeah. What Meyer's referring to is, in the beginning of 2025, we acquired FIA Surety, which was a small contract surety specialist in the Mid-Atlantic states. So based in New Jersey and wrote in two or three states in the Mid-Atlantic area. Fast-forward to the beginning of 2026, we completed the acquisition of The Gray Casualty & Surety Company. Gray was larger scale, and had a larger geographic footprint. Fortunately, the one area that Gray was a little bit light, frankly, was the Mid-Atlantic states. As we think about the combination of what was FIA and what was Gray Surety, now all branded as Palomar Surety, the puzzle pieces fit together quite nicely. That's really been a good platform for us to now continue to invest in Palomar Surety and grow it. From an integration standpoint, integration is largely complete at this point.
Acquisition closed at the end of January. The teams have all now been integrated, common branding with Palomar Surety. We went through the first reinsurance renewal as a combined entity, and really largely that integration is now complete. One of the things that Gray had historically done really well was going into new markets and opening new offices. Small contract surety is really most effectively written in the market where the risk is located or where the principal is located. They've got a blueprint that's worked out really well for them over the years of how they bring in underwriting talent to a new market and grow it profitably. We're looking to continue to invest in what they've done successfully, and continue to grow that.
I think when you look back in five or 10 years, this will be an organic growth story for us, even though this was a platform that we did acquire in two different pieces and brought together. We think that this really puts us in a position to become a top 20 surety writer in time.
Fantastic. If I can move on to crop, and I have to start by giving Chris kudos because the crop seasonality in terms of things like net to gross earned premium and the loss ratio and the acquisition expense ratio, it can make things very complicated. I do want to thank you for your patience in helping me eventually get there. Can you talk a little bit about how crop is shaping up? I know we're not done yet in terms of the overall growing season, but any insights you have in terms of how things have been manifesting so far?
Yeah, I think the biggest change, at least from our standpoint, is our expectation on premium. We talked about that with the Q2 earnings release that we expected crop gross written premium to be above $400 million this year
versus call it lower $300 million at the beginning of the year throughout the season. We do think that it is shaping up well for us. I'll let Jon talk about overall underwriting performance in a little bit, but to your point, it is a different line of business. It does have different premium earnings ratios that kind of impact how the losses impact our overall portfolio. It's had a lot of strong growth. It is a larger component of the Palomar portfolio at this stage, so it does move the needle, let's call it. We expect a lot of that movement to happen in the third quarter. If people are looking for a lot of specifics, we have put a slide in our investor deck that does talk about what we're expecting from crop, what we're expecting in the third quarter from some of these.
We do expect this to drive some of the results in the third quarter. We expect higher written premium, net earned premium, gross earned premium. We expect a higher loss ratio, highest combined ratio, all to happen in the third quarter. A lot of that driven from the crop book of business. Just the way that we write and earn the crop business while the risk period and the true writing of the policies does happen in March of this year, because the acreage reports associated with that line of business are due in July. We do not recognize a lot of that written premium until July. So that all shows up in the third quarter. There's also a catch-up of the earned premium in the third quarter.
It has a generally shorter risk period that usually ends in October, so you end up earning a lot of that premium in the third quarter. Then similarly, a lot of the losses associated with it, whether it be estimates or actuals, are showing up in the third quarter as well. With the size of that book, in our overall portfolio, you will see a lot of needles move in the third quarter. It is also the first full quarter of our new reinsurance tower that we just purchased. While pricing was favorable, we are also buying for growth, so the dollar spend is going to be higher. We expect our lowest net earned premium ratio in the third quarter as well, but then moving up from there over the next 12-month period of time. The third quarter does have a little bit of noise.
We have tried to provide, to your point, a lot of useful information in there, in our investor deck about how people should be thinking about modeling it. But crop does move the needle for us. Jon, I do not know if you want to talk about underwriting results or what we are seeing so far. It is still, we will call it early innings, but yeah.
Yeah. I would just underscore one thing that Chris mentioned on the loss ratio side. If you were to look at our book excluding crop, it has been very stable loss ratios. It is the seasonality of loss ratios that kind of adds some of that noise to the loss ratios as you look at it on a quarter-by-quarter basis as opposed to an annual term. From a performance perspective, we see this year kind of within historic norms. It has been a good year so far. A lot of the crops are still in the ground, but it has been a good year. Commodity prices have held up quite well. Because again, crop insurance is not largely just a function of yield, but yield and commodity prices. The fact that the commodity prices have been strong this year certainly helped the outlook.
If we could just follow up briefly on one point. You mentioned, and this was true on the second quarter call, that you raised your expectation, your guidance for crop premium this year. What do you think drove that? Where is the success manifesting itself?
There's a lot of excitement and momentum around what we're building at Palomar on the crop side. A lot of the existing players, again, there's 12 of us that are allowed to write MPCI in the United States. Of the 12, we are certainly one of the more dynamic, if not the most dynamic company that's really investing in reducing the friction for our agency partners. We've brought on individuals that have strong customer service relationships that go back a long time. We've invested a lot in our claims staff, that's one of the ways in which you differentiate in the crop space. Then talked about it earlier, but PLMR.Farm, which is really the first new policy administration system that's been introduced into the crop space in a long time.
That makes a big difference for our agency partners and our staff to be able to really deliver strong service to our agency partners. That's really what makes the biggest difference in gaining share. There's just a lot of positive momentum around what we're doing in the crop space.
Okay, excellent. Again, I just want to look around to make sure I'm not overlooking any questions. I want to move next to flood.
Which has two components to it. Broadly, what's going on, then you've got, at least from my standpoint, the question of what happens with the NFIP. What happens in 2028 if there's a change in administration? How do you think about that level of uncertainty in terms of where you want to grow in flood?
Yeah, sure. Just as a little bit of a backdrop for everybody, Palomar has been in the flood space since 2017. We were one of the first writers of admitted flood, really focusing on an inland footprint of our flood book for a number of years as we were getting going. It was a good grower for us. Then this last year, just almost a year ago, partnered with Neptune Flood. I know Trevor Burgess was on the stage yesterday and taking meetings here as well. We think very highly of Neptune Flood as an organization, and really allowed us to take what was more of an inland admitted flood product and move it on an ENS basis towards the coast and kind of open up and broaden our scope of writings and doing it with a partner that we really respect in Neptune Flood.
I think as we look at that market, that is an area that we feel like there's great growth prospects. With or without a change to the NFIP, I think for a number of years now, we've seen some movement and acceptance from lenders that require flood insurance on a property to accept a private market alternative to the NFIP. I think as we've seen United States Congress either delay the reauthorization of or allow for a temporary lapse in the NFIP, that kind of hampers the ability or government shutdowns. All of those changes over time have really shown the benefit of the private market and having an alternative to the NFIP.
I think regardless of administration change, regardless of kind of the status of the NFIP, I think there's a lot of tailwinds for the private market, and for Palomar in particular, along with Neptune Flood, to continue to grow share. Then obviously, if there was a bigger, more structural change to the NFIP, I think there's even more upside.
Okay. If we could move to casualty. I guess one basic question is just one of the themes we're hearing is that casualty rate increases broadly are slowly decelerating and how that impacts growth. Then a broader question, we touched on this earlier, but I want to flesh it out a little bit.
From our perspective, two main considerations are, one, how seasoned is the Palomar book of casualty business, which would translate into more comfort, and the second is what is going on with casualty reinsurance pricing. What are the other considerations as you look to a 2027 casualty reinsurance plan?
Yeah. I can kick this off, and maybe we kind of go back and forth on this one. I think one thing I would say, as we talked about the five categories of business that Palomar has with earthquake, inland marine, other property, casualty, surety, and crop, that casualty segment is comprised of a bunch of different products that are all kind of niche and unique specialty casualty lines of business. And these range, and when I say that, I mean we have environmental liability, we have healthcare liability, we have real estate agent E&O. So it is all these kind of niche different lines of business that all within the overall broad casualty segment have their own market cycles that they play through.
So within the product set that we have, there could be one product that is in a little bit more of a soft market cycle, and there could be another product that is in a bit more of a hard market cycle. So, unlike some casualty platforms that are more uniform in the product offerings that they may have. We have a lot of diversification and I do not know if we say that enough. I think sometimes people think that we are writing general liability across the United States or commercial auto or something like that, and that is not the case. It is very niche, specialty classes of casualty business. A lot of those are supported, or all of them are supported in some way, shape, or form with quota share reinsurance.
And so one of the aspects that we like about the quota share participation is that as we are growing these casualty books of business, we have a strong partner sitting alongside of us on a first-dollar basis to help us evaluate, underwrite, and conservatively grow those books of business. And actually speaking of the casualty reinsurance partners that we have, over the course of the second quarter, all of those treaties that we had renew, all renewed at more favorable terms. So I think as we are looking at that market and what we are doing, there is some validation in the sense that those that are standing alongside of us on a dollar one basis are growing in their conviction of what we are doing that translates into better terms, but Chris, if you want to
Yeah, I think obviously we are still, I'd call it, we're in probably the middle innings of the book. As we continue to grow that book, write that book, I'd say this is middle innings, so we're happy with the overall performance of how it's been going so far. I think we have seen on some of the older books and some of the books that were part of our old fronting program, we have seen some favorability there. So we saw some favorability in the results in the second quarter from that. Most of the favorability is still driven from our property side, but overall, we feel good about how the casualty book has been developing. We're happy with what we're seeing there, but we'd still say it's middle innings. So we still view ourselves as very conservative on the reserving on the casualty side.
We have about 84% of our overall reserve sitting in IBNR, which is definitely above where you could pick it if we were picking it perfectly. So overall, we feel happy with how we're doing there. But it's still probably middle innings and still more to come as we continue to grow.
Yeah. Chris has said this for multiple earnings calls now, but we prefer to take the approach of setting a conservative expected loss ratio when we get into a line of business, taking bad news fast, and being very deliberate in recognizing any kind of good news on the casualty side.
Okay. If I can speak on behalf of everyone, no one regrets that decision. Not everyone adheres to it, even if they say it.
Yeah.
But when that is the actual reality, I think we appreciate it. With that, we have come to the end of our session. I want to thank Jon and Chris. This was phenomenally informative. We covered, I think, a lot of ground. So thank you and good luck.
Yeah. Thanks, Meyer.